(Editor's note: This article was edited on Sept. 24, 2010. The article originally stated that the five Houghton County districts expected to save a combined $338,929, or $88 per pupil. These numbers were corrected to $334,136 and $87, respectively.)

Michigan's public school districts receive a stable stream of revenue from Lansing,
but face increased demands for employee salaries
and benefits, so it comes as no
surprise that a record number of districts contracted out for food, custodial
or transportation services in 2010. According to the Mackinac Center's 2010
School Privatization Survey, 48.8 percent of Michigan school districts
contracted out for one of the three main noninstructional services, an 8.0
percent increase over 2009. Privatization of these services has increased by 57.5
percent since 2001.

And it's no surprise that more districts contract out for
these services since those that did so expect large savings. Novi Community
Schools, a 6,000-student district in Oakland County, expects to save more than $3.5
million in the next 30 months by contracting out this service with GCA Service
Group. That is effectively a $233 per-pupil funding increase. It was one of 32
districts that began contracting out for custodial services.

While custodial service is the fastest growing area of
contracting, food service remains the most frequently contracted service, with 31.2
percent of districts contracting out. This year, 12 districts began new food
service contracts. This reverses the trend from the past two years, when the
number of districts with private food service managers fell slightly.

One of the districts that contracted out for food services was
Rochester Community Schools. The nearly 15,000-student district said it expects
to save $563,403, or about $38 per student, by contracting its food services
out to Chartwells.

Growth in districts contracting out their transportation
service has been significant in the past few years. This year, 13 districts
began new contracts for busing, increasing the proportion of districts that
contract for this service to 9.3 percent. Five of those districts were in
Houghton County. Districts there had looked at a consolidation and joint
contract for transportation services, but when complications arose, the
districts took action themselves and bid out their own services. Portage
Township Schools, Tamarack City Schools, Calumet/Laurium/Keweenaw Public
Schools, Adams Township Schools and Chassell Township Schools expect to save a
combined $334,136. The savings of all five school districts amount to an average
of $87 per pupil.

Pension costs are a financial drain on school districts.
Districts must pay about 19 percent of payroll to support retirement benefits
of public school employees. This is one reason why contracting out with
employee leasing services for noninstructional services is attractive to
districts. The companies usually offer retirement savings benefits through
401(k) plans, which can save the district up to 10 percent. Employee leasing
agencies accounted for three of the new food service contracts, seven of the
transportation contracts, and seven of the custodial service contracts.

Some districts have arrangements where, as employees retire
or otherwise leave the district, the positions are replaced with leased
workers. The arrangement is working in Chassell Township Schools, where its
cook and food service assistant retired and became leased employees through
GMS. The district had been losing $30,000 in its food services but now is
running a $10,000 surplus.

Privatization has not been the only cost-savings idea
explored by districts trying to control costs. As a new addition to the
privatization survey, districts also reported on services they began sharing
with other districts and their ISD. Food service sharing was popular, with 52
districts sharing parts of food service, either through sharing a food service
director or by setting up a food purchasing block with neighboring districts.

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James Hohman is a fiscal policy analyst and Dustin Anderson
is a research intern at the Mackinac Center for Public Policy, a research and
educational institute headquartered in Midland, Mich. Permission to reprint in
whole or in part is hereby granted, provided that the authors and the Center
are properly cited.